Investment brings reform for power generators

RusHydro has begun construction on a new pumped-storage hydro station in the Moscow region. The unit, worth more than 3 billion dollars, is to begin operations in 2011 and is expected to up energy supplies in Moscow and the surrounding area. The project w

There has been little investment in Russia’s power generating capacity in recent decades. Energy reforms, which saw the energy monopoly Unified Energy System split into numerous private generating companies, were done to attract badly-needed capital into the sector. Energy Minister, Sergey Shmatko says the need for an overhaul of the system is vital.

What we’ve inherited is not a well-maintained or smooth-functioning machine, we have to fix it now ourselves. We face a lack of equipment and construction personnel, as well as fast growing prices.

The market economy was seen as the best mechanism to attract investment in new generating capacity. But it is expensive and pays off slowly – on average over 15 years. So the main risks for the newly formed companies are financial, as OGK-4s General Director, Andrey Kitashev explains.

Originally we planned to invest 3.2 billion dollars but today we realise that this sum will need to be increased as, for example, the energy equipment is becoming more expensive very rapidly.

The new market conditions are also generating competition between the companies according to Vladimir Khlebnikov, General Director of OGK-1.

All the generating companies have quite ambitious programmes. And we're facing a serious competition for, say, general contractors.

However, most companies admit, there's no choice but to expand. Anatoly Kopsov, General Director of OGK-5 says some are already looking at new projects, despite fast growing prices for construction materials.

We are considering new investment ideas, that is to construct additional power generating units beside those that we have or are already building.

The urgent need for investment was the driver behind the reform of Russia's power sector. The move to a free market brings its own risks, but the main benefit is that now it's much easier to raise capital, and the new generating companies are eager to invest.