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Interview with RAO Energy System of East’s head, Sergei Tolstoguzov: “Market on the Far East region is impossible for reasons beyond control”

Against the background of a major intensification of projects on the development of the Far East region, RAO Energy System of East, which controls the isolated power system of the region, has offered the Government to abandon tariff regulation in the local energy sector and to switch to a new mechanism that takes into account the return on investments for 20 years. For a while, a number of structures of the holding company has not enough tariff revenues even to maintain their obsolete equipment and the repayment of their debt. But general director of RAO Energy System of East Sergei Tolstoguzov sees interest in the company from Asian investors, believes in the prospects of exports to Japan and doesn’t want to get rid of even the problematic network assets.
Q- the RAO Energy System of East still works in a lack of normal market conditions, these were canceled for the rest of Russia seven years ago. Do tariff the mechanisms of the return on investment into the construction of power generation and networks in such conditions exist?
A- With the reform of the electric power industry, most energy companies received the opportunity to use market instruments; almost the entire power generation sector was divided among private and public companies. But the Far East is a separate area, where market mechanisms don’t work - this is one big no-price zone with isolated energy systems, in which there is no differentiation by type of business. There are many reasons: the topology of networks, territorial restrictions, a lack of the development of energy sources, the sparse population. The Far East region occupies a third of the territory of Russia, but it has only 5% of the population. That’s why the full tariff regulation is maintained here and, as a consequence, there is a problem of the lack of mechanisms for the return on investment.
This seriously complicates the task of upgrading and the construction of new energy facilities. Today, we should include the profit in tariffs, but it is minimal and we can’t increase the prices sharply - the consumer can’t pay more. We have developed a number of proposals, which are based on long-term consolidation of the tariff. The FTS is now considering the introduction of regulation for three to five years. But the best period for us would be 20 years – this is the only way how we will be able to disclose adequate conditions of the return on investment to potential investors, a major station can’t be covered in five years. If we talk about specific tools, we would like to see RAB-regulation in the networks, and introduction of mechanisms that guarantee the return on capital and profit in generation. We actively work on all of these mechanisms, which will allow us to provide the return on investment in the energy sector of the Far East in the future, and plan to co-ordinate them with head of the Board of Directors (head of RusHydro, Evgeny Dod), the relevant Ministries and the presidential envoy to the Far Eastern Federal District Yuri Trutnev to submit them to the Government later.

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Uzbekistan and Kogas signed a direct agreement on a construction of gas chemical facility

The Government of Uzbekistan and South Korean Korea Gas Corporation (Kogas) signed a direct agreement on a construction of the Ustyrtsky gas chemical combine on the north-west of Uzbekistan at $3.9 billion, the source in the fuel-and-energy company of the Cabinet of Ministers of the republic said.
“The direct agreement contains a supplementary protection of the interest of the creditors and investors of the project,” the source stated. In particular, the structure and hedging rate have been agreed, the terms of replacement of the participants and compensation on an exit has been regulated.

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Korean companies have started the construction of a gas chemicals complex in Uzbekistan

Samsung Engineering, GS Engineering and Hyundai Engineering (Korea) have started the active stage of the construction of the technological part of the Ustyurt gas chemicals complex in the North-West of Uzbekistan.
The construction of the technological part has started, the assembly of the equipment is held, the Uzbek party is constructing the infrastructure, the works are held in conformity with the approved schedule. Read more »

Eximbank of South Korea invests $1 bln into gas project of Korean companies in Uzbekistan

The Export-Import Bank of Korea on March 26th announced about the investment of $1 bln into the gas project of the Korean companies in Uzbekistan, Dow Jones agency reports.
8 Korean companies, including Korea Gas (036460.SE) and Honam Petrochemical (011170.SE) at the present time participate in the gas project of Uzbekistan (development of the Surgilsky deposit and the project of the construction of the plant) which will also be financed by Eximbank, the announcement of the State Bank of South Korea says, Regnum reports. Read more »

Plants producing pipes and building materials of waste to be built in the Pavlodar Region

It is planned to build plants producing concrete, pipes and building materials of Kazakhstan Aluminium JSC and Aksunsky ferroalloy plant's waste in the Pavlodar Region. South Korean businessmen will participate in the building, press service of the regional Akimat (local administration in Kazakhstan) reported.


As reported by the press service, meeting of the deputy Akim of the region Murat Ospanov with managing director of Samsung IMK Corporation export and import company U Je Hill took place. Read more »

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