with Ivan Avetisyan, General Manager, Quartz Group
Before taking over as CEO in August 2011, Mr. Avetisyan, you held a number of senior positions within Quartz. What was the first priority you set yourself in your new role?
When I first took over as the new CEO, my initial task existed in reforming and rebuilding the company, to be able to achieve the tasks we faced and to ensure the successful execution of projects that had been awarded to us. Our main projects were the Olympic venues in Sochi as well as a facility in Omsk, the latter which was particularly challenging from a technological point of view –both at facility and equipment level.
Some of our interviewees have argued that the modernization of the Russian power system is done –to a certain extent– through megaprojects such as the Olympics in Sochi. What role do you see such projects playing in the modernization process of Russia?
For the Russian Federation, such projects are undoubtedly very important but one could argue how they relate to the energy business. The Sochi Winter Olympics 2014 have perhaps pushed the developments of the Sochi region, more than the energy sector alone. Projects such as the construction of new oil facilities or new gas pipelines are likely to provide a greater push for the development of the grid and other infrastructure, especially in the eastern part of Russia.
For some companies in the sector, the prestige of participating in particular projects can sometimes be more important than the financial gains. Would you say that prestige was also a key element in participating in the Sochi project?
When Sochi started, I believe that many Russian companies went there with offerings that were below realistic market conditions. A similar scenario developed itself when the new RAO UES program was launched. Several companies started to offer to build power stations at very low prices, which is why many of these companies now have financial problems. Quartz New Technologies, however, has avoided going down this path and has also faired rather well on the Sochi project so far.
Quartz Group consists of several companies. How would you describe the Group’s positioning based on this structure?
When I first joined the company in 2006, there was a group of service companies dealing and working with power stations of Tyumenenergo, based in Surgut and Tyumen. At that time, several other service companies were located in other cities of the Russian Federation such as Perm, Krasnodar, and so forth. The main idea was to build the group itself.
In the 1990s and the beginning of the 2000s, the building of power stations had slowed down. Until RAO UES announced its 5 year program, only a limited number of construction projects took place. Companies active in the construction area therefore saw themselves forced to turn themselves into service providers to generation facilities.
When we started gathering this group of services companies together under the Quartz brand –which took about one year or more– we were tasked by our shareholders to return to our engineering background, in order to participate in the RAO UES new construction program. We gathered our skilled engineers together into the company Quartz Tyumen and were quite successful in winning a number of tenders.
I then left the company to work on some other projects for a few years, during which the Quartz Group was divided into two parts: the service group and the engineering company, now known as Quartz New Technologies. Our shareholders saw two directions of work and started selling the service part of the business. Today, they continue with Quartz New Technologies, where I am now the CEO. The main goal was to return to our engineering background of roughly ten years earlier, which certainly was the toughest challenge.
You mentioned winning a number of tenders. What criteria really matter in this market today?
A number of elements play a role today to win a tender. A first key factor is the number and quality of previous projects a company has completed to date; its track record so to say. In second instance, customers will be checking the company’s pipeline of current projects, as well as the financial stability of the company. Customers need to be reassured that as a supplier you are a financially stable entity. Further to that, they will try to understand how well connected you are within the sector in general and to the different design institutes in particular.
Nowadays, however, the first thing a customer will ask, is how well we as a company adopt and comply with Western standards. This also includes details about our safety track record, which needs to be impeccable.
We aim to work with companies that have been active in Russia for a long time. Several of them also approach us as a technical consultant. Maintaining high standards is very important because very often the base of technical consultants in Russia is not very developed. There is still a generation of old engineers with a Soviet mindset. In order to look at things differently we now need a new generation of engineers.
Looking back at the Quartz track record, are there projects you are particularly proud of?
Our interaction with Tyumenergo and Fortum has been a long road of trying to understand each other and reach a result that would be satisfying for all parties. We have completed different projects together, but a more interesting one was perhaps the Tyumensk-TES, a gas and steam-turbine (PGU) project. The gas turbine had to be imported from Italy while the steam turbine came from St. Petersburg. The project itself was not greenfield, but a reconstruction process requiring technically challenging work.
Another difficult project is at a 660 MW coal plant of OGK-2, a Gazprom Energoholding company, in the city of Troitsk. The project is unique in Russia in the sense that it is one of the first coal-fired power stations of over 500 MW. On this particular project, we are working closely together with our colleagues from China. Our main task exists in organizing the whole lot. From an engineering perspective, the hardest part is to translate a Chinese design into Russian technical standards. This involves a lot of back-and-forths between the Chinese design institute –which starts the design from scratch– and the Russian institute that needs to approve everything. Due to the challenges that this complex process brings, we expect this to become a project we can be very proud of later.
If your customers ask Russian companies which Western standards they uphold, we can imagine they ask the same to your Chinese colleagues. What value do they bring to the table?
First of all, the Chinese are very organized. They are able to make complex offers based on extensive experience of working on large scale projects. In Russia we had not build such large-scale and complex projects for a long time. To organize 2,000 staff on one site is even impossible for Russian companies at this point in time. The Chinese company we work with, however, has done such projects over 50 times already. At the same time, the price is also very attractive. In our experience, the common seen international perception that Chinese companies cannot uphold quality is a myth in this case.
Looking at present market developments, the Russian government has already announced that significant investments will be made in generation in the coming 20 years. How optimistic are you about the current outlook for Quartz?
Although I am optimistic, the situation is not that simple to assess. The current modernization of the Russian energy system cannot be done from outside the country. A lot of work needs to be done in terms of modernizing the different design institutes as well as the upgrading of our fundamental and practical sciences. We also need to keep working towards the further development of our capabilities in the production of power equipment. Looking at the scale of what needs to be done, there is no one from outside of Russia that will come do the work for us. The Chinese are very busy in their own market while many of the Western and European producers currently have their own problems due to the financial situation.
One also needs to take into account that we have a lot of coal facilities in this country. We expect coal boiler technology to advance towards higher temperatures and more effective steam production. Another area that has not yet really taken off in Russia but is expected to do so shortly is the renewables niche. Three of four years ago, not a single person in the government was looking at such developments. Today, we have specific initiatives and institutes that are developing a strategy to advance in this area too.
For Quartz, we see many ways to move forward. In the close future, we will closely look at further development in terms of designs of projects. We also need to develop a team of designers to close some of the gaps we currently face.
On a personal note, you clearly have been through quite an evolution with the company. What do you see as your next big challenge?
Although it is quite hard to say, it is perhaps the mere fact that one has been with the same company –in the same environment– for a while. It sometimes limits one from taking an external view and asking ‘what is next?’ The first challenge looks at August 2013, when we will finish the Olympic project in time.