Russian power sector reform Presentation to AmCham Russia members by CEO of Unified Energy Systems of Russia, Anatoly B. Chubais

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Russian power sector reform Presentation to
AmCham Russia membersby CEO of Unified Energy
Systems of Russia, Anatoly B. Chubais
March 20, 2001
Moscow
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Increase in power generation

• 2000 saw a 3.9 increase in Russias power
  consumption level
• To achieve this, RAO UES has raised its power
  generation by 19.5 bn kWh as compared to
  1999.(586.5 kWh in 1999 versus 606.0 bn kWh in
  2000)
• This is comparable to annual power consumption
  level of such highly industrialised regions as
  Samara and Perm
• According to expert estimates, in 2001 power
  generation level is going to rise by 47.5 bn kWh
  compared to 1999

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Improvement of power quality and reduction of the
number of technological failures
Power quality
Technological failures (number over the last 4
years)
of
calendar
Frequency,
time
Hz
Y2000 number of technological failures fell by
25 compared to 1997
99.94
50
100
49.98
95
94.6
49.96
90
49.94
85
49.99
49.92
80
78.6
49.9
49.88
75
49.92
49.88
70
49.86
Average frequency of electric current
65
49.84
RAO UESs time of standard
frequency operation per year
49.82
60
1996
1998
2000
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Resolution of non-payment problem
Significant improvement in cash collection

Paid in cash,
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Normalisation of settlements with power suppliers
During 1998 - 2000 RAO UES succeeded in

• increasing the share of cash in settlements with
  Gazprom by the factor of 3.4 (from 27 to 92).

• increasing the share of cash in settlements with
  coal companies by the factor of 4.4 (from 16 to
  70).

• increasing the share of cash in settlements with
  oil companies by the factor of 5.3 (from 13 to
  70)

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In spite of increase in the capex volume...
? 2000 the amount of RAO UES investments in
production was 1.4 times as high as it was in
1998 (RUR 34.9 bn against RUR 24.3 bn).
North-Western Co-Generation Plant

• Late in 2000 the first unit of the North-Western
  Co-Generation Plant was commissioned - first CCGT
  plant in Russia
• Total design capacity of the plant will be 1,800
  MW
• Its efficiency rate will amount to 51.5, while
  at conventional steam plants this rate does not
  exceed 40
• Fuel consumption per 1 kW of generated power will
  fall by 20-25
• Construction of the plant is financed by RAO
  UES

1,116 MW
836.5 MW
823.9 MW
RUR 34.9 bn

RUR 28.7 bn
RUR 24.3 bn
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internal resources are not sufficient to solve
the key problem
Assets of RAO UES have highly deteriorated

• Over the last 15 years virtually no large power
  projects have been commissioned
• Annual retirement of capacities is 5 times as
  high as the introduction of new ones
• Annual amount of investments is 5-6 times lower
  than required

Without optimisation of RAO UES structure and
that of the power generation sector in general,
Russia would become energy deficient by 2005
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Current structure and economic mechanism
Key drawbacks
Basic accomplishments
Federal (wholesale) market

• System of sellers and buyers has been
  created FOREM has been founded
• Need to establish contractual relations between
  market participants has been recognised
• Need to set price (tariff) taking into account
  power specifics (tariffs for power and capacity)
  has been recognised

• Sellers do not sell, buyers do not buy, FOREM
  is not a true market
• Principle of a core payer is applied, a buyer
  is linked to a seller, contractual relations are
  half fictitious
• Price (tariff) is set not by the market but by
  regulators (Federal Energy Commission and
  Regional Energy Commissions) and is cost-based

Regional (retail) level

• Absolute monopoly at the regional level single
  seller system, all buyers in the region are
  obliged to purchase from the single seller

• No changes

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Basic directions for the development of power
sector structure and economic mechanism
Market structure unbundling of monopolistic and
competitive sectors
Currentstructure
Market structure full liberalisation of economic
relations within the sector
Administrative System
Enlargementof AO-energos
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Most countries have chosen a competitive model
Private
California (1995)
Moldova (1999)
Privatisation
Italy (1999)
EC Directive for Power sector
Kazakhstan (1998)
Russia (2000)
Ukraine (1997)
Greece (2000)
South Africa (2000)
France (2000)
State- owned
Liberalisation
State regulation
Competitive market
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Russian power sector reform implies introduction
of competition into generation and supply of power
Segments, where development of competition is
possible

• Introduce free market pricing
• Stop cross subsidizing

Generation of power
Dispatching
Rules of the market
High voltage grid
Re-organise the regulatory system
Regulated tariffs

• Reorganise commercial/ technological
  infrastructure for functioning of power market
• Provide equal access to distribution network

Natural monopolies
Distribution
Supply of power
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The reform should harmonise Russian power sector
with basic principles of EU Electricity directive
(1996)
Principles of Russian reform
EU Directives principles
Liberalisation of electricity generation and
supply through implementation of competition
Demonopolisation of generation and supply through
restructuring of UES subsidiaries
Free access to customers
No constraints for third party access
Community-wide
Gradual opening of electricity markets over a
period of 6 years
Development of wholesale and retail electricity
markets and conditions for private investments
Separation and strict regulation of
transmission separation and regulation of
distribution, third party access to the grid
Unbundling and strict regulation of electricity
transmission and distribution systems
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Raising investments is a key task of reform
Replacement of depreciated capacity is
necessary...
while investment are down 3 times over last 10
years...
Rbls bn. (in 1991 roubles)
80 GW by 2010...
6,5
6,3
4,5
3,1
2,9
2,8
2,7
2,2
2,2
while new constructions is down 5 times
GW
4
2,5
2,2
2
1,3
Capital requirements for a replacement of
capacity is estimated between 2 bn to 6 bn
annually
1
0,8
0,8
0,6
0,6
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Reform will open new horizons for co-operation
between Russia and international investors in
power sector
Strengthening Russian electricity security is in
the interests of international investments in
Russian economy
New markets for Russian and international power
sector technologies
Investments opportunities in generation and
supply
Russian power sector reform
Continuing cooperation with multilateral
organisations