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SUEK's CEO answers questions from heat consumers and employees live on air

23 December 2020

Power Engineer's Day, celebrated in Russia and CIS on 22 December, is the most important holiday of the year, as humanity cannot live without heat and light. Stepan Solzhenitsyn, CEO of SUEK, wished a happy holiday to company employees and industry participants live on Instagram. In the final live broadcast of the year, the company's head did not sum up the results but instead shared his thoughts, impressions and plans and answered numerous questions from the audience.

Over 1,500 people watched the broadcast online, leaving hundreds of comments. Stepan gave prompt answers to most of the questions.

What is customer focus in the power industry?
This is a complex word with a very simple explanation: think more about people and less of yourself. Power industry workers deal with boilers, hardware, pipes, and they understand what to do when the equipment fails. However, this is not enough. We also need feedback from people on how satisfied they are with the work done in terms of central heating, hot water quality. If there is a risk of claims, it is better to find the problem on your own and take corrective actions, compensate for damages. We should collect information about whether houses in our cities are warm enough not from complaints. We need to constantly keep our finger on the pulse, equip our pipes with sensors, as monitoring the quality of work is our direct responsibility!

How do you assess the current heating season?
So far, everything has been smooth, but you never know. Siberia is yet to see a sharp frost, pretty soon. We have not yet had a headache, but the most difficult part is still ahead, so we are preparing our networks to survive a 30-degree frost. We will discuss preliminary results of the heating season at the end of February, in March, when critical temperatures are over.

Is it time to sum up this year's economic performance?
I do not want to shower you with numbers. It is obvious that 2020 is a year of very low coal prices on international markets, and it cannot be called particularly successful in terms of business performance. We have not received any investment resource, but the previous years were successful, profitable, so there was still an opportunity to invest, and we took it in the regions with long-term regulation conditions.

Will investment make it possible to fundamentally change the industry?
To maintain the system at a satisfactory level and ensure stable operation, we need to upgrade around 3% of the fixed assets. No money was invested in the 2000s. Now there are various modernisation programmes, and an important condition for participating in them is the return of investment. If the cooperation is long-term and the investment pays off, if the regulator offers long-term rules for capacity supplies (for heat sources) or transferring to a price zone (for heat networks), this creates the basis for forward investment. In short-term relationships, we trust each other one year, while in long-term ones, our trust lasts for 10-15 years, and this encourages us to invest in upgrades ahead of schedule.

Does coal-fired generation have a future?
The future is where coal-fired generation is cost-effective, technologically advanced and environmentally friendly. Coal brought from Siberia to Moscow cannot compete with gas in terms of its price. Moreover, it cannot compete in gas-producing regions, for example, in the Tyumen region. The parity border runs roughly along the Urals: coal is used in close proximity to local production sources. In Siberia and the Far East, it is the most reliable, abundant and cost-effective fuel. Its use is rational and cheaper even where gas is available, and we can see that many people decide not to connect to gas but instead to burn coal in their homes. Here we face another important aspect, environmental. People are worried about harmful emissions, they want to breathe clean air.

Our company shares people's concerns; we have developed programmes to mitigate the harmful effects of coal generation on the environment. Unfortunately, these programmes cannot be delivered in a couple of months. For example, in Krasnoyarsk, where the 'black sky' issue is particularly pressing, in a few days we will commission the first of our electrostatic precipitators at CHPP-1. This is a high-tech structure built using technology from Alsthom, a global engineering giant. Our next filter will be connected in February, that is, we commission treatment equipment step-by-step, thus reducing emissions. Apart from us, there are other pollutants such as private homes and cars, which, probably, should be gradually replaced with electric cars and gas-powered vehicles.

Also in Krasnoyarsk, we are replacing ineffective, non-environmentally friendly standalone boiler houses without gas cleaning equipment. A month ago, two such heat sources were closed down in the western part of the city. By 2024, we will close down 35 more!

Could heat supply be more affordable?
We work in the segment of the cheapest combined heat and power generation, using local coal resources from Kuzbass and the Krasnoyarsk region or transporting coal to neighbouring regions such as the Novosibirsk and Altai regions and Khakassia. In fact, this is the cheapest heat supply on the planet.

Siberian coal resources are vast, but how long will they be in demand? For example, for Germany own coal and nuclear power were cost-effective, but under pressure and as a result of public consensus, the country has gradually abandoned these power sources. As a result, people from, say, Hessen pay for heat by an order of magnitude or two more than Siberians. I hope that in Russia we reach the same level of prosperity someday, achieve the German standard of living and can afford to spend huge amounts of money on the technical re-equipment of the entire heat and power supply system.

At present, we live in a different reality and cannot spend on basic needs, utility services more than 4–8% of family income. Therefore, building a new, expensive and high-tech heat supply system still seems superfluous. It will be unaffordable for our consumer. Siberian coal remains the most budget-friendly. This fuel is mined by neighbouring miners and burnt at our plants using new clean technologies.

When will Kuzbass switch to the alternative boiler method?
We have a ready-made proposal for Kemerovo, similar to that for Barnaul, since the cities are close in size and population. Investment may total approximately $80-110m. The exact amount will be known after adjusting the programme. Our alternative boiler project in the capital of Kuzbass will focus on environmentally friendly heat supply. It is worth noting that the accident rate in local networks is much lower than in other cities where we operate; therefore, Kemerovo citizens mainly ask to reduce the harmful impact on the environment.

In a few days, I will be signing an investment agreement with the regional administration to replace heat supply facilities in a large part of the city of Novokuznetsk by connecting to the Tom-Usinskaya GRES. The project is under development. They will ask me what is wrong with the Kuznetskaya CHPP, which supplies heat to various city districts. Nothing, this is a good, but very old plant, which takes heroic efforts to stay in good working order. Up-to-date, including environmental, solutions require a large amount of investment. Perhaps it will be much easier to replace the plant by building a heating main 25 kilometres long to the Tom-Usinskaya GRES. Such projects have already been implemented, both in Russia and abroad. However, we need accurate calculations because the slightest mistake will deprive it of cost efficiency.

There is another large SGC's project in Kuzbass for the coming years, to connect the city of Belovo to the Belovskaya GRES. It will help replace several ineffective heat sources and reduce harmful emissions into the air, increasing energy efficiency. If everything goes according to plan, the total investment in the upgrade of heat sources, heat networks and the construction of new heat infrastructure in Kuzbass could exceed $400m.

In general, in the near future, whenever possible and economically justified, we will transfer state district power plants (GRESs) to the combined heat and power mode. If there is a sufficient number of heat consumers within the plant's radius, it makes sense to replace the old boiler houses and transfer residential buildings to heat supply from a large source. First of all, this will generate a positive environmental effect.

Does ‘not cheaper’ mean ‘not better’?
One of the fears when switching to the alternative boiler method is that the company might lose touch with reality, stop receiving feedback and lose competitive advantages. What is the main thing in the alternative boiler method? Alternative! If someone can build a boiler and get heat at a much more affordable price, we will lose consumers. We should monitor the situation, otherwise everyone will leave us. This forces us to make numerous calculations in order not to build something redundant. On average, we should be 25-30% cheaper than the 'alternative'. If we are not cheaper, then we are not better.

Will SGC buy new energy assets in the near future?
The purchase and sale of energy assets is a normal part of the company's life. Our experience makes it possible to manage some facilities more efficiently, there is a kind of synergy. Nevertheless, other facilities might need different approaches and different companies. We are open to any discussion and negotiation, this is a normal interactive process, not something frozen and fixed.

I would like to note that the two assets purchased this year have made us a really federal company. I am talking about the Primorskaya and Reftinskaya power plants, our new strategic priorities in the West and East. I want to emphasise that both plants have great prospects.

Should we expect a salary increase in the company?
We are living through a difficult COVID time, and the main task of our company is to maintain stability and employment, avoiding mass layoffs. In 2020, we have coped well. We are also looking for reserves for further investment in modernisation, the creation of new jobs, as this is necessary for the company’s sustainable development.

From the point of view of profitability, there has been little good news so far. This has been a crisis year in terms of energy production, with a very high water level. Therefore, hydroelectric energy turned out to be more in demand in the market.

Today, our main task is to honour all our commitments, and the rest, perhaps, can wait for now. Of course, in doing so, we will index all salaries, which is planned for 2021, but that is all I can promise with certainty.

How to become a top manager at SGC?
Do not set yourself such goals. Personally, I had no idea that I would ever find myself in the management of a large corporation. The right intention is to be useful. It will help your fulfilment.

What is the main lesson learnt in 2020?
We have passed a test of strength. I was extremely pleased with the job our people were doing in the pandemic. We had a good start this summer, when we worked hard and got the cities ready for winter. During the difficult months, our contractors and employees, the entire team, showed their worth. We know what the strength of metal is, but the strength of people might be even more important. Because of the COVID, we lost several colleagues. A big loss was the death of Kuzbass Branch Director, Yury Sheybak. Of course, everyone has gone through psychological stress, so we are going into 2021 with accumulated fatigue. What will it be? As difficult and unpredictable? Or will it be a year of recovery and relief? We do not know it yet, but of course, we hope for the best.

You can watch the full interview with S.A. Solzhenitsyn on SGC's website:
https://sibgenco.online/news/element/generalnyy-direktor-sgk-v-pryamom-efire-otvetil-na-voprosy-potr...



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