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
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By 2015 Belarus is going to implement a series of projects aimed to replace outdated capacities, reduce gas consumption and promote local fuels and renewable energy sources.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.
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.
of the Grodno hydropower plant
on the Neman River is slated for completion in 2012. The total capacity of the plant will make
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
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