Along the innovation course
Modernization declared by Russian President Dmitry Medvedev as a political guideline is developing in the country not in green field. It is promoted by a high production level in numerous industries. VIP-premier asked Director General of MRSK Holding (inter-regional distribution network companies) Nikolai Shvets to share his ideas about present-day and future development of the main infrastructure component of the Russian electricity generating industry.
MRSK Holding JSC
Оne of the major infrastructure companies in Russia. The enterprises of the Holding annually transmit some 600 billion kWH of electricity, their network length exceeds two million kilometers, and assets comprise over 456 thousand substations. The Holding is the biggest network company in the world by production indicators. 25 percent of company stock is in free float. The distribution grid of the company employs over 190.000 people.
Nikolai N. Shvets has been Director General of MRSK Holding since March 2009. Born in 1956 in the village of Velikie Budischa in Poltava region he graduated from the Pan-Union Polytechnic Institute by correspondence, from the Military Command Academy of Air Defense, and the Military Academy of the General Headquarters of the Armed Forces. In 1974-1986 he served in air defense troops and was deputy commander of the unified CIS air defense system. From 1998 he is Colonel in reserve. In 1998-2007 he worked in the system of Russian military-technical cooperation with foreign states (Promexport, Rosoboronexport). Since 2003 he has been vice-president of the Union of machine-engineering employers and member of the board of the Union of machine builders of Russia. In 2007-2008 he was first deputy prime minister and then chairman of Amur regional legislature. Candidate of Sciences, Economy, corresponding member of the Academy of Military Sciences, head of the scientific department for security problems in the fuel and energy complex of the Academy. Married with a daughter.
– Mr. Shvets, can we say that MRSK Holding creation was a result of UES Russia reform? What was the result of the creation of the sub-industry in power engineering?
– The UES Russia reform was a major state endeavor in the process of transformation of the whole national economy. Generating facilities in charge of power plant operation as well as trunk power transmission and distribution lines were separated into independent utilities. The MRSK Holding emerged as an entity to manage electric network distribution complex in 69 regions of the Russian Federation.
There was a certain imbalance in the development of generating, network and sale sectors of electric power engineering for a long time. Power plants were built, as well as high-voltage power transmission lines, however electricity distribution networks lagged behind in development each year as they were mostly financed by the leftover principle. As the Soviet Union collapsed, decreased investments in power engineering mostly affected electricity distribution networks.
As a result, most equipment was worn out and the wear-and-tear comprised 69 percent. Outdated equipment is a reason for the loss of nearly 9 percent of transmitted electricity, while electric companies in industrialized nations fix the acceptable loss level at five-six percent.
MRSK Holding companies bear immense responsibility, as our infrastructure supplies electricity to 123 million Russian residents. They also arrange for the operations of utilities that bring nearly 80 percent of the Gross Domestic Product. The creation of the MRSK Holding helped form the center of responsibility for the state and development of technical infrastructure to provide electricity transportation and distribution services to customers, as well as technological connection of customers to electric networks
– Today they speak a lot about RAB, which is a promising tariff regulation method. What does it mean?
– We analyzed the existing world experience in tariff regulation and submitted to the Energy ministry and the government a substantiation of the necessity to switch to long-term tariff regulation with the use of the so-called Regulatory Asset Base (RAB) method. The government resolved to establish the rules for the transition of MRSK-governed utilities to long-term tariff regulating methods by early 2011. The new tariff system allows to efficiently satisfy investment needs and attract loans to the industry for equipment upgrading.
The RAB-method determines the profitability norm for invested funds and their guaranteed payback. The regulation period comprised three years in all the eight pilot regions (Astrakhan, Belgorod, Lipetsk, Rostov, Ryazan, Tver, Tula, and Perm Territory). Investment profitability norm was established at six percent in the first year, 9 percent in the second year, and 12 percent in the third year.
RAB-regulation makes companies establish a norm for operating costs cuts. If savings exceed one percent, the money remains in the company for the period of regulation. Thus, the companies receive internal financing sources for investment programs. We are convinced the transition of operating utilities to the RAB method of regulation will help stop the alarming trend of equipment ageing. However to decrease the wear-and tear from current 69 to acceptable 50 percent a complex program of targeted events is necessary. The program called Renovation was designed and submitted to the Russian Energy ministry. According to preliminary estimates, the implementation of the program in the coming ten years will demand 2 trillion 850 billion rubles. Naturally, the federal budget cannot earmark such funds. We shall look for other sources and options of financing.
CONSOLIDATION OR STRATEGIC INVESTOR?
– How does cooperation with foreign partners develop and along which guidelines?
– To implement the tasks of the Holding we have to streamline electric grid management structure. We are consulting foreign energy and electric network companies on the issue and are examining managing scheme experience. In March in the framework of the Russian-French Business Forum held on the sidelines of the visit of Russian President Dmitry Medvedev to France the MRSK Holding and Electricite Reseau Distribution France Company signed a cooperation agreement. Cooperation guidelines with French colleagues include, first and foremost, mastering experience in such spheres, as “smart network” construction, integration of renewable sources of energy into distribution network system, servicing electric grid equipment by concession agreements, interaction with municipalities, and formation of an asset management structure. We shall also develop mutually beneficial contacts between higher educational establishments of Russia and France that train personnel for power generating enterprises. In future we plan to cooperate with other foreign energy companies as well.
ENERGY TARIFFS TO GROW GRADUALLY
– Growing electricity tariffs, specifically for households, caused a major problem. What is the share of electricity transmission costs in the total electricity bill?
– Electricity tariffs can leave nobody indifferent. Compared to West European countries they continue to remain low in Russia. The difference is caused by social and economic factors. We cannot raise tariffs to West European levels as the living standards do not allow it. I want to recall that free electricity prices will be introduced for Russian households only in 2014. The share of electricity transmission costs in the total electricity bill comprises an average of 27 percent depending on local circumstances. According to preliminary estimates, this year average network tariffs will grow some 15 percent in the country and 22 percent in the regions that switched to RAB regulation. Improved management system and financial mechanisms help restrain sharp price hikes for electricity transportation and simultaneously receive the necessary finances for technical upgrading and modernization. The new tariff policy gave us a possibility to plan investment expenses and provided a fixed profitability norm for investors.
– What are investment priorities for MRSK Holding?
– It has been calculated that in normal economic conditions the power engineering industry should satisfy economic and household needs with a three-year anticipation. The Russian demand for electricity is forecast to double by 2020. That makes it necessary to expand transformer capacities and increase the carrying capacity of power transmission lines, which is taken into account in MRSK Holding investment programs.
If we speak about major investment projects in the coming years, the construction of the facilities for the 2014 Winter Olympic Games in Sochi is among the priorities. Late last year MRSK South Company received 2.6 billion rubles of state appropriations for the purpose and this year it is planned to disburse 4.4 billion rubles as goal-oriented financing of the Olympic construction program.
Network construction for energy transmission from the heat and power plant-2 in Kaliningrad and electric supplies to the Baltic Pipeline System-2 will comprise priority investment projects this year.
Debt financing in the amount of 30 billion rubles is envisaged for the year. MRSK Holding stock considerably upped since trading began on Russian exchanges in December 2008 and capitalization grew from 35 to over 200 billion rubles. MRSK Holding and its subsidiaries have been included by the Russian government into the list of systemically important Russian companies that are too big to fail.
Large-scale upgrading and renewal of distribution networks are possible only due to innovative solutions. The talk is about more reliable electricity supplies, upgraded counting system on the basis of intellectual technologies, introduction of energy-saving technical solutions, and “smart network” ideology promotion. With this aim the MRSK Holding plans to use its own research institutes to create a scientific design and engineering center. Such important task as the design of a modern electricity counting system will be accomplished. During the implementation of Renovation program it is planned to switch from traditional electric networks to actively adapting power grids. Today automatically balancing and self-controlling grids are in demand as they are capable of receiving power from any source, be it coal, sun or wind, and transform it into the end product for consumers with minimum human involvement. Intellectual networks use sensor, communication and control subsystems and allow to considerably increase the efficiency of electricity counting and distribution.
We estimate that mass installation of electricity counters and consumption regulating devices will allow to decrease network losses up to 20 percent on average. The implementation of the “Smart network” concept will help regional network companies accomplish such projects, as “Smart town”, “Smart quarters”, and “Smart house”. Since November 2009 the MRSK Holding has a taskforce to promote the introduction of the technology in such pilot regions, as Belgorod, Nizhnevartovsk, Sochi, and Kaliningrad. In Belgorod region the “Smart town” project has been implemented already to a certain extent. Losses in the operational zone of responsibility of Belgorodenergo, an affiliate of MRSK Center, fell to 6 percent.
– The scope and significance of MRSK Holding tasks advance very high requirements to the personnel of your companies who have to combine specific knowledge in electricity generation and modern management. How do you resolve the problem?
– The MRSK Holding as a management company in vertically-integrated MRSK Group was set up in 2008. Many employees earlier worked in the UES Russia. They are qualified and well-trained experts. We also actively hire best experts on the labor market. Today professionals capable of all-round review of the experience of leading foreign energy companies for its efficient use in the development of Russian electric network distribution complex are in high demand. But there are few of them so far. To train such experts we have signed an agreement with the Moscow State Institute of International Relations and the International Institute of Energy Policy and Diplomacy and plan to open a special desk of electricity generating economy and management. We plan to annually train 20-30 foreign language speaking specialists ready for work in inter-regional distribution network companies and in the management company proper who have modern economic knowledge and a service record in international energy companies.
WAGES AS SOCIAL FACTOR
– Are there any specifics in social work due to a major strength of MRSK Holding workforce?
– We do not have any special social programs. We work to fully comply with the commitments stipulated in the tariff agreement in the industry. There are collective labor agreements between trade unions and employers that strictly fix the obligations of the parties.
The level of wages is an important social policy factor. It differs in various Russian regions. Average wages in our operating companies also differ, but they are at least 10 percent higher than the average figure in the region. That is due to specific work of power engineers. They have to constantly display strict discipline and compliance with labor safety rules. Power engineers like the military are always on combat duty. Power transmission lines can break down any moment and equipment can fail. Emergency situations call for urgent decision-making and immediate elimination of technological faults. Such activities are strictly regulated in time and far from everyone can cope with the tasks.
Care for labor veterans of the electric network complex is a separate activity guideline for MRSK Holding leadership. We see to it that none of the veterans remains without attention. Many of them are actively engaged in training a new generation of workers and sharing experience with them. For this aim the Coordinating council of veterans of the electric distribution complex has been set up.
– How does you previous labor and service record help you?
– My service record in the central unit of the chief power engineer of air defense forces definitely helps me in everyday technological management. My economic experience formed in Rosoboronexport and in the Far East where I worked in the regional government and chaired the legislature in Altai region. I was destined to work in the Far East as the combat life of my father was linked to the region. After the war with Japan in 1945 he served as torpedo electrician on a submarine. That means I inherited electrical record.
– Is that true you were born not far from Dikanka close to Vasilyevka where the parents of Nikolai Gogol lived and where his museum is currently located?
– Yes, my parents gave me that chance, as well as the possibility to learn Russian and Ukrainian cultures, the joy and sorrow of countryside life. I began my labor record in Poltava region.
– Which awards do you treasure most?
– I am always pleased to recall my work as combine harvester operator as I was awarded the state medal For Labor Merits for it at the age of 17. Many years later during the service in the air defense troops I received the medal For Combat Merits. They are the most treasured awards for me.
– Preserving the memory of Maria Bashkirtseva is a part of humanitarian activity of your Holding, isn’t it?
– No, it is family business and care for our compatriot who painted some 150 pictures during her short life. I believe it is my duty to popularize her creative work. My wife founded the Maria Bashkirtseva Fund in Dikanka village which works to create the only museum of the talented artist in the world. We also arranged for the international conference devoted to her 150th birth anniversary and published an album.
– They say you enlisted legendary Mikhail Kalashnikov into the ranks of power engineers. Is that true?
– We are old friends with Mikhail Timofeyevich Kalashnikov. We first met in Rosoboronexport and made several business trips together. He is a genius, a true patriot and a genuine citizen of the Motherland.
On the eve of the 90th birthday of Mikhail Kalashnikov one of the substations of Udmurtenergo affiliate of MRSK Center and Volga Company in the city of Izhevsk received the honorary dispatcher name of Kalashnikov. It is as reliable as the small arms of our legendary designer. The life of Mikhail Kalashnikov is an example for all Russian generations. Kalashnikov is always in the ranks and helps us in our activities. We are grateful to him for that as we are grateful to all World War Two veterans.
By Yevgeny KOSOV, Valentin ALEXANDROV