The panel session “Russian Energy: From Reform to Development. Investors’ View” was conducted on May 23, 2014 at the St. Petersburg International Economic Forum 2014 (SPIEF 2014)

The session was attended by Alexander Novak, the Minister of Energy of the Russian Federation. Discussions were focused on assessment of industry changes over the last 10 years and exchange of opinions between government official and market participants.

Among the participants of the discussion were General Director of "Integrated Energy Systems" Boris Vainzikher, General Director of JSC "OGK-5" Enrico Viale, President and CEO of Fortum Corporation Tapio Kuula, McKinsey & Company partner Stepan Solzhenitsyn, Chairman of the Board of Directors of EOS Russia Remes Seppo Juha and Chairman of the Executive Board of RUSNANO Anatoly Chubais. The moderator of the discussion was Vladimir Knyaginin, Director of the Center for Strategic Research " North-West " Foundation.

In his speech, Mr. Novak noted that changes in the Russian power industry were beneficial to the industry, however the ministry still confronts serious and complex problems.

Reform of the Russian power industry had two goals: to increase the efficiency of fuel and energy complex and to provide reliable, uninterrupted power supply to consumers , said the head of the Russian Ministry of Energy. He added, that in general, both goals had been achieve.

“We succeeded in increasing investment in the sector in the period from 2008 to 2013 about 3 times compared with the previous five-year period, as well as in reducing costs of electricity production: specific reference fuel consumer per kWh of electricity decreased from 335 to 329 over the last 2 years . We still lag behind some other countries, but positive trend is obvious”, he said.

The Minister of Energy and presented data on the results of solving the second problem: over the past five years the duration of power cuts decreased 2.5 times and the number of technological failures - 2 times. Also, there was created NP Market Council, the self-regulatory structure which reduced the government’s influence on the industry.

Speaking about power sector problems Alexander Novak noted that the mechanism for putting out of operation of unprofitable generating units with the total capacity18 GW had not yet been introduced.

“Further development of the power joint market includes transition a competitive environment, liberalization of relations, development of the mechanism for long-term bilateral contracts. These goals require significant changes in the legislation”, said the Minister of Energy.

The first step in this direction would be the heating market reform - the transition to tariff settlement through mechanism of an alternative boiler and creation of local uniform heating supply companies. According to Alexander Novak, these proposals were viewed favorably the President of the Russian Federation, and the related road map was introduced to the Government.

Also, the adopted nationwide grid modernization program envisages 15 percent reduction in operating costs and 30 percent reduction in capital expenditures by 2017. Achieving the goal requires introduction of benchmarking mechanism, price and technology audit. Most of the relevant legal acts have already been prepared. Head of Russia’s Energy Ministry also mentioned measures to improve the payment discipline in the retail electricity market
“Last year we were able to reverse the negative situation of non-payment on the wholesale electricity market, now we are undertaking similar efforts at the retail market," - said Alexander Novak.

RUSNANO Corporation head Anatoly Chubais expressed his support for the concept of the heating market reform developed by the Ministry of Energy of Russia, and said it was important to liberalize retail electricity markets.

Fortum President Tapio Kuula noted that his company was being well received in Russia. "We'll stay here, even if there are more hard times to come," - said the head of the Finnish generating company.

General Director of JSC "OGK-5" Enrico Viale said that the decision on the reform of the electric power sector was timely and brilliant, "But not all has been accomplished, a new impetus is needed. The first step would be the heating market reform. "