More Pow­er­ful, Less Ex­pen­sive

By 2015 the ag­gre­gate ca­pac­ity of the Be­laru­sian en­ergy sys­tem will make 9,612MW with lo­cal fu­els ac­count­ing for 30% of all en­ergy re­sources

Economy of Belarus - - CONTENTS - Anna KOT

By 2015 the ag­gre­gate ca­pac­ity of the Be­laru­sian en­ergy sys­tem will make 9,612MW with lo­cal fu­els ac­count­ing

for 30% of all en­ergy re­sources

Am­bi­tious Plans Re­quire Mas­sive In­vest­ments

By 2015 Be­larus is go­ing to im­ple­ment a se­ries of projects aimed to re­place out­dated ca­pac­i­ties, re­duce gas con­sump­tion and pro­mote lo­cal fu­els and re­new­able en­ergy sources.

To­day, new hy­dro­elec­tric­ity and heat power plants are con­structed all over Be­larus; ex­ist­ing fa­cil­i­ties are up­graded and ren­o­vated;

The en­ergy po­ten­tial of an econ­omy and its en­ergy ef­fi­ciency are im­por­tant in­di­ca­tors of a coun­try’s de­vel­op­ment level. They de­ter­mine in many ways the cost of pro­duc­tion, com­pet­i­tive­ness, house­hold in­come and well-be­ing of peo­ple. There­fore, en­sur­ing en­ergy se­cu­rity be­comes para­mount for coun­tries like Be­larus that lack hy­dro­car­bon re­serves. To this end, Be­larus has come up with a strat­egy to de­velop en­ergy po­ten­tial, which pri­or­i­tizes di­ver­si­fi­ca­tion of fuel and en­ergy re­sources and up­grade of the en­ergy sys­tem in a bid to raise its ef­fi­ciency.

wind mills are built, co-gen­er­a­tion plants us­ing lo­cal fu­els are com­mis­sioned, elec­tric and heat net­works are ex­tended.

The ca­pac­ity of the en­ergy sys­tem of Be­larus is to in­crease from 8,266.4MW in 2010 to 9,612MW in 2015. The en­ergy con­sump­tion is ex­pected to in­crease from 37.5 bil­lion kwh in 2010 to 39.7 bil­lion kwh in 2015. Si­mul­ta­ne­ously the spe­cific fuel rate is to shrink by 25-30 grams of fuel equiv­a­lent/kwh by the end of this five-year term. Con­sump­tion of im­ported gas will be re­duced by 2.1 bil­lion cu­bic me­ters. The share of lo­cal en­ergy sources is to make up at least 30% in the fuel mix of Be­larus by 2015.

It is ob­vi­ous that such large-scale plans re­quire con­sid­er­able in­vest­ments. In line with the strat­egy to de­velop en­ergy po­ten­tial, cap­i­tal in­vest­ments in the en­ergy in­dus­try are to make up $23.3-23.8 bil­lion in 2011-2015. About $8.663 bil­lion will be chan­neled into en­ergy con­ser­va­tion and pro­mo­tion of lo­cal fu­els, $8.5-9 bil­lion will be spent on up­grad­ing en­ergy in­stal­la­tions. About $3 bil­lion will be al­lo­cated for the con­struc­tion of the Be­laru­sian nu­clear power plant.

How are these plans im­ple­mented? In 2011 Be­larus’ elec­tric en­ergy provider Be­len­ergo uti­lized Br6.4 tril­lion of cap­i­tal in­vest­ments, which was up 1.7 times over 2010. No need to say that the na­tional bud­get alone would not be able to pro­vide that amount of in­vest­ments. A great share of the funds was pro­vided by do­mes­tic and for­eign in­vestors. Over­all, for­eign in­vest­ments are cru­cial for smooth im­ple­men­ta­tion of the en­ergy strat­egy.

Be­larus has cre­ated fa­vor­able con­di­tions for in­vest­ing in the en­ergy in­dus­try. A se­ries of pro­gres­sive laws and reg­u­la­tions was adopted to ac­com­mo­date in­vestors, a va­ri­ety of ben­e­fits and guar­an­tees was of­fered al­low­ing in­vestors to

man­age their prof­its the way they want, among other things.

The tax ad­min­is­tra­tion has been con­sid­er­ably op­ti­mized. It be­came sim­i­lar to the tax sys­tems of Euro­pean coun­tries. Seven years from 2008 the busi­ness terms in free eco­nomic zones will re­main un­changed. In­vestors putting money into projects re­lated to re­new­able en­ergy will be en­ti­tled to a num­ber of ben­e­fits, in­clud­ing the pro­tec­tion of pur­chas­ing prices for gen­er­ated en­ergy, ac­cord­ing to the law on re­new­able en­ergy.

In­vestors are of­fered var­i­ous terms of par­tic­i­pa­tion in en­ergy projects. This may be project fi­nanc­ing on Build-own-op­er­ate (BOO) or Build, Op­er­ate, Trans­fer (BOT) prin­ci­ples, etc. Such forms of co­op­er­a­tion as con­ces­sion, joint ven­tures, fi­nanc­ing of con­struc­tion projects are pos­si­ble, too.

Ge­og­ra­phy of Be­laru­sian En­ergy Loans

By the way, loans are cur­rently the most com­mon form of in­vest- ments in the Be­laru­sian en­ergy sec­tor. In 2011, loans ac­counted for about half of the in­vest­ments that Be­len­ergo put into the de­vel­op­ment and up­grade of the power grid. The share of for­eign loans made up more than 70%. This is money from China, Rus­sia, the Czech Repub­lic, Aus­tria, and In­dia.

The ma­jor projects com­pleted in Be­larus in 2011 us­ing for­eign cap­i­tal were the con­struc­tion of two 65MW com­bined-cy­cle units at Minsk CHPP-2 (a Chi­nese cor­po­ra­tion was the equip­ment sup­plier), and a com­pact co­gen­er­a­tion plant run­ning on lo­cal fu­els with the electricity ca­pac­ity of 4.2MW and heat out­put of 19.6MW in the town of Re­chitsa. The lat­ter project was im­ple­mented with the help of Aus­trian cap­i­tal. Promis­ing are projects to con­struct a 1.5MW wind power plant in Novo­gru­dok Dis­trict, Grodno Oblast, with the par­tic­i­pa­tion of a Chi­nese com­pany.

In 2012, Be­len­ergo in­tends to in­crease the uti­liza­tion of cap­i­tal in­vest­ments to Br9.2 tril­lion. For­eign loans, as in the past year, will con­sti­tute a sub­stan­tial por­tion of the funds.

Many of the projects will be car­ried out with the par­tic­i­pa­tion of the Peo­ple’s Repub­lic of China, Be­larus’ tra­di­tional fi­nan­cial part­ner. In par­tic­u­lar, the re­con­struc­tion of Minsk CHPP-5 is cur­rently un­der­way and is on track has been com­plete in 2012. It will fea­ture a new 399.6MW com­bined-cy­cle unit built by pro­fes­sion­als from the Peo­ple’s Repub­lic of China. China is in­volved in the projects to up­grade the Bereza and Lukoml state dis­trict power plants. 400MW com­bined-cy­cle units will be built at these plants by 2014.

In ad­di­tion, the PRC is an in­vest­ment part­ner of Be­larus in the project to con­struct the Vitebsk hy­dropower plant on the Dau­gava River (to be com­mis­sioned by 2015). In the first half of this year, Be­larus is set to hold closed ten­ders among Chi­nese com­pa­nies to con­struct 330kv power lines for the Be­laru­sian nu­clear power plant on the turnkey ba­sis with the use of an ad­di­tional con­ces­sional credit from the PRC.

A Rus­sian com­pany is par­tic­i­pat­ing in the project to build the Polotsk hy­dropower plant on the Dau­gava River which is to come on stream in 2015. But, of course, the largest project Be­larus is im­ple­ment­ing jointly with Rus­sia is the con­struc­tion of the Be­laru­sian nu­clear power plant (NPP). The plant in Ostro­vets, Grodno Oblast will be built by Rus­sia’s Atom­stroy­ex­port. Some 90% of the project will be fi­nanced with a state ex­port com­mod­ity loan from Rus­sia to the amount of $10 bil­lion. Two units of the plant with the to­tal ca­pac­ity of 2,400MW are to go on­line in 2018.

An In­dian com­pany is par­tic­i­pat­ing in the project to up­grade Grodno CHPP-2. The project is on track to be com­plete in 2012. Slove­nia is Be­larus’ part­ner in the con­struc­tion of the 110/10 KV sub­sta­tions Dol­gi­novskaya and Gru­shevskaya in Minsk. They are sched­uled to be put into op­er­a­tion this year. The Grodno hy­dropower sta­tion on the Ne­man River which is be­ing built with the par­tic­i­pa­tion of Czech in­vestors will be com­mis­sioned in 2012.

In the near fu­ture projects will be launched to in­stall electricity gen­er­a­tion equip­ment in a boiler house in the city of Mogilev, and at a CHPP in Zhodino. 80% of in­vest­ments for the projects will be come in a form of a loan of the In­ter­na­tional Bank for Re­con­struc­tion and De­vel­op­ment, the rest from Be­laru­sian sources.

To Seek and Find

We can say with­out ex­ag­ger­a­tion that plans to de­velop and en­hance the op­er­a­tional ef­fi­ciency of the Be­laru­sian en­ergy sys­tem are be­ing suc­cess­fully im­ple­mented. Thanks to loan re­sources, many projects turn out to be con­sid­er­ably cheaper to the public purse.

But, as Be­laru­sian power engineers re­it­er­ate, loans are loans. And de­spite their con­ces­sional terms, loans as well as their in­ter­ests should be paid back.

This is why to­day Be­len­ergo and its com­pa­nies are fo­cused on rais­ing FDI. For­eign di­rect in­vest­ment comes into the Be­laru­sian econ­omy usu­ally in the form of joint com­pa­nies, sale of shares and prop­erty as well as in­vest­ment project fi­nanc­ing.

We should ad­mit that now the sit­u­a­tion with FDI in the na­tional en­ergy sys­tem is not as op­ti­mistic as we wish it to be. Ac­cord­ing to head of the Be­len­ergo depart­ment on for­eign eco­nomic co­op­er­a­tion Sergei Ulasik, Be­len­ergo raised only $10 mil­lion in di­rect in­vest­ment last year. Half of it was in­ward in­vest­ment.

The in­vest­ments were dis­trib­uted into sev­eral ar­eas. The most at­trac­tive one for Be­len­ergo was the cre­ation of joint com­pa­nies.

In 2011 Be­len­ergo and Rus­sian In­ter RAO UES opened a Be­laru­sianRus­sian com­pany En­er­go­con­nect in pur­suance of the bi­lat­eral in­ter­na­tional agree­ments con­cern­ing the mea­sures to se­cure the par­al­lel op­er­a­tion of the Be­laru­sian and Rus­sian united power grids.

The com­pany was reg­is­tered in Be­larus in June 2011 to build up the ex­port of Be­laru­sian and Rus­sian electricity from Be­larus to third coun­tries via cross-bor­der di­rectcur­rent con­nec­tions.

At present the joint com­pany is pre­par­ing a fea­si­bil­ity study for the par­tic­i­pa­tion in the con­struc­tion of a cross-bor­der con­nec­tion with Poland. En­er­go­con­nect might act as an in­vestor in the project.

It is note­wor­thy that this was not the only joint ven­ture Be­len­ergo set up last year. The Be­laru­sian-rus­sian com­pany, Iso­la­tion Tech­nolo­gies Bel, was opened at Minsken­ergo to pro­duce Pi-pipes for the power in­dus­try.

Apart from that, in 2010 a joint com­pany with Czech Mo­dran­ska potrubni,a.s was set up at the Belooz­ersk Power Me­chanic Plant to man­u­fac­ture high-pres­sure pipe­lines. The Czech side used two pipebend­ing ma­chines to make its con­tri­bu­tion to the au­tho­rized fund of the com­pany. High-pres­sure pipe­lines will be used at dif­fer­ent power fa­cil­i­ties of the coun­try.

Di­rect in­vest­ment in 2011 was raised mainly through the sale of stakes in the three Be­len­ergo com­pa­nies: En­er­go­ef­fekt, Belkot­loochistka and the Belooz­ersk Power Me­chan­i­cal Plant. The first two ten­ders were won by Be­laru­sian com­pa­nies. A Rus­sian com­pany was named stake­holder in the Belooz­ersk

plant. The com­pany is ex­pected to bring $1 mil­lion worth of di­rect in­vest­ment.

Be­laru­sian in­vestors ac­quired such fa­cil­i­ties and com­pa­nies as an-of-town fa­cil­ity of the Vitebsk Heat Net­works sub­sidiary, Bo­bruisk Fiber­board Plant, man­u­fac­tur­ing fa­cil­i­ties of Minsk CHPP-5.

The sit­u­a­tion with the in­flow of for­eign di­rect in­vest­ments needed to con­struct new power gen­er­at­ing units is more com­plex. The prob­lem is in the con­flict of in­ter­ests. In­vestors want to make sure the Repub­lic of Be­larus will buy the gen­er­ated elec­tric en­ergy so that the project will be prof­itable. In­vestors want the pay­back pe­riod to be as short as pos­si­ble, which can be achieved by set­ting high rates for elec­tric en­ergy gen­er­ated by their fa­cil­i­ties.

“Some want the pay­back pe­riod to be five years, oth­ers agree on 10 years. Ap­petites dif­fer. How­ever, this can have an im­pact on en­ergy prices for con­sumers. We, rep­re­sen­ta­tives of the state, need to pre­vent the price rise for electricity both for house­holds and eco­nomic op­er­a­tors. There­fore, our ma­jor re­quire­ment to in­vestors is to ex­port the gen­er­ated en­ergy to other coun­tries,” head of the in­ter­na­tional co­op­er­a­tion depart­ment of Be­len­ergo Sergei Ulasik said.

Find­ing the op­tion which will sat­isfy both in­vestors and the state is a dif­fi­cult but fea­si­ble task, Sergei Ulasik is con­vinced. For in­stance, Be­len­ergo is hold­ing talks with a Turk­ish in­vestor over the con­struc­tion of two hy­dro­elec­tric plants on the Western Dv­ina River with a com­bined ca­pac­ity of 46MW. The in­vestor of­fered pretty good terms. The to­tal in­vest­ments are es­ti­mated at about $320 mil­lion. This money will be pro­vided within three to four years as the plants are con­structed. About $30 mil­lion might be trans­ferred as early as in 2012.

Steps For­ward

How­ever, it must be borne in mind that the year 2011 can hardly be an ex­am­ple of ro­bust in­vest­ment ac­tiv­i­ties. Po­ten­tial in­vestors were dis­ap­pointed by the ob­jec­tive fac­tors caused by the dif­fi­cult eco­nomic sit­u­a­tion in the coun­try. In 2012 Be­larus is ea­ger to over­come all neg­a­tive is­sues. And the first pos­i­tive re­sults of the cur­rent year, namely the GDP in­crease, trade sur­plus in goods and ser­vices, in­fla­tion slow­down, tes­tify to cer­tain pre­req­ui­sites for suc­cess. This is ex­tremely im­por­tant for in­vestors.

Will­ing­ness to in­vest in the Be­laru­sian en­ergy sec­tor may also rouse plans to re­form the en­ergy sys­tem. As a re­sult, by 2015 Be­larus will have its own whole­sale electricity mar­ket. More­over, there are plans to get rid of cross-sub­si­dies in tar­iffs on en­ergy re­sources within the next five years. Thereby, the Be­laru­sian en­ergy sec­tor may be­come more at­trac­tive for di­rect in­vest­ment.

By the way, this eco­nomic clus­ter has al­ready made cer­tain progress in us­ing pri­vate cap­i­tal. In line with the new rules of en­ergy sup­ply, which be­came op­er­a­tional on 1 Jan­uary 2012, any le­gal en­tity, re­gard­less of its form of own­er­ship and in­cor­po­ra­tion, can be an en­ergy sup­ply­ing or­ga­ni­za­tion in Be­larus.

Thanks to some other ad­van­tages, namely fa­vor­able ge­o­graphic po­si­tion in the cen­ter of Europe, qual­i­fied and rel­a­tively cheap man­power, high sci-tech and in­dus­trial po­ten­tial, ro­bust lo­cal mar­ket and mem­ber­ship in the Sin­gle Eco­nomic Space, Be­larus has good con­di­tions to at­tract in­vestors to the en­ergy sec­tor. This is just the mat­ter of time.

The con­struc­tion

of the Grodno hy­dropower plant

on the Ne­man River is slated for com­ple­tion in 2012. The to­tal ca­pac­ity of the plant will make

up 17MW

While launch­ing a new unit at Minsk CHPP-5 on 17 Fe­bru­ary 2012 Pres­i­dent of Be­larus Alexan­der Lukashenko urged Chi­nese in­vestors to con­tinue co­op­er­a­tion in the en­ergy sec­tor

Af­ter the up­grade of Unit 3, the Lukoml state dis­trict power sta­tion will save 19,000 tonnes of fuel equiv­a­lent per

year

A new en­ergy ef­fi­cient tur­bine in­stalled at Vitebsk CHPP will help in­crease electricity pro­duc­tion up to 490.2 mil­lion KWH per year and re­duce steam con­sump­tion

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