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Tuesday, March 27, 2012 7

RUSSIA AND GREATER CHINA

Mainland secures power deal Eastern Energy’s agreement will supply China with 100 billion kWh for 25 years, writes Vadim Ponomarev

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he Eastern Energy Company (part of Inter RAO, Russia’s state-owned energy holding) has signed a long-term contract with the State Grid Corporation of China (SGCC) for the supply of 100 billion kWh of electricity over the next 25 years. Electricity supply under the new contract started on March 1. It is expected that Russia’s electricity exports to China will reach 2.6 billion kWh this year, compared with last year’s 1.2 billion kWh). “The company’s new electricity deal with China is the biggest and longest ever, as far as the amount of electricity supplied to China and the terms of the contract are concerned. We have laid firm foundations for further implementation of the agreements reached earlier envisaging a phased increase in Russian power exports to China to 60 billion kWh,” says Mikhail Shamshurin, general director of Eastern Energy Company. During the Soviet era, China’s Heilongjiang province, which borders Russian territory, bought electricity from its northern neighbour. The electricity exports to China were resumed in 2009 by Inter RAO, one of the companies succeeding the federal energy holding, RAO UES of Russia, which was dissolved in 2008. Ever since, the annual export volume has been maintained at just over 1 billion kWh – the maximum the transnational electricity transmission lines between the Amur Region and the Heilongjiang province could handle. Yet,

Russia must upgrade its power lines to satisfy China’s increasing demand for electricity. Photo: Lori/Legion media

ELECTRICITY even back then, China documented in intergovernmental agreements with Russia that it was ready to “consume” some 60 billion kWh of electricity a year. In 2010, China’s domestic demand for electricity jumped by almost 15 per cent to more than 4 trillion kWh annually. In the past two years, the Eastern Energy Company has built a special 1,280-metre-long transition line across the Amur to a new electricity trunk line. In turn, the Federal Grid Company has put in place this 500kW electrical trunk line, stretching 152km from the SinoRussian border to the Amurskaya electricity substation. It has also revamped the substation so that an additional 400MW of excess electric energy could be transferred from the Amur Region, which boasts power plants with an aggregate capacity of up to 4GW and which can only consume no more than 2GW, even with such long-

term projects as the Vostochny Cosmodrome factored in, to China. This new 500kW electricity transmission line allowed the Eastern Energy Company to sign the 25-year contract for electricity exports to China on the basis of an estimated amount of approximately 4 billion kWh a year.

We have laid firm foundations for implementation of the agreements envisaging a phased increase in Russian power exports to China MIKHAIL SHAMSHURIN, GENERAL DIRECTOR, EASTERN ENERGY COMPANY

Meanwhile, the 2.6 billion kWh this year and even 4 to 5 billion kWh a year in the future is not even close to the 60 billion kWh that China is still hoping to buy. However, according to estimates, for Russia to be able to export 60 billion kWh a year to China, it will have to build

new power-generation facilities with an additional combined capacity of 10.8GW and a grid of more than 3,000km of alternating and direct current lines of various voltages in the regions bordering on China. The cost is, however, the main stumbling block. While the Eastern Energy Company has not divulged the value of the 25-year, 100 billion kWh electricity export contract with China, it is known that the price talks have been growing more difficult by the year, as China played the card of building new coal-fired electric power plants in its northeast provinces. There are three ways to supply an annual 60 billion kWh of electricity to China at a reasonable price. The first one is to team up with China for the construction of coal-fired thermal electric plants along the border – an opportunity highlighted by Mikhail Shamshurin. “To bring our trade this high, we have to build new electric power plants in Russia jointly, coal-fired plants above all, as well as new cross-border ultra-high voltage electricity transmission lines,” says the Eastern Energy Company’s general director. New electricity transmission lines will have to be built in the southern regions of the Far East, but Russia has so far failed to agree with China on the joint construction of ther-

mal power plants. The second option for Russia is to build new hydroelectric power plants in the Far East to produce cheap energy, which would then give it room for manoeuvre during price talks. This is what the state-run RusHydro, which owns the 1,330MW Zeya and 2,010MW Bureya hydroelectric power plants in the Amur Region, is doing. The third option, chosen by Russia’s biggest private energy holding, Eurosibenergo, controlled by Oleg Deripaska, involves establishing a joint Russian-Chinese venture to build hydroelectric plants in Russia that would then supply excess electrical energy to China. YES Energo, a joint venture by Eurosibenergo and the China Yangtze Power Company, is now eyeing two possible projects - Lower Angara (Nizhneagnarskaya) hydroelectric power plant and the Trans-Siberian hydro-electric power plant on the Shilka River. It is not clear which of the three options – joint construction of thermal plants along the border by Inter RAO and Chinese companies, independent construction of hydropower facilities in the Far East by RusHydro, or the YES Energo joint venture – will take the lead in Russia’s electricity supplies to China. Most likely, it will be one of the hydroelectric options.

Trouble in paradise for ambitious investors > CONTINUED FROM PAGE 1

The Melekhins have no regrets about coming to Sanya, but they are not against selling their cinema if the opportunity presents itself. “On the whole, we spent treble what we initially planned and revenues have turned out to be smaller [than what we expected], though our business has paid itself off,” Melekhina says. Where the Melekhins did miscalculate was their client expectations. About 200,000 Russian tourists come to Sanya every year, becoming targets for Russian businessmen trying to make their fortune in China. The Melekhins hoped to attract buses of Russian and foreign tourists, yet they have not signed a single agreement with a tourist firm in the 18 months. Russian tour operators use a very simple scheme, selling tours at cost (or even below) and making their money from kickback payments from medical cen-

tres, jewellery and snake shops, and other tourist traps. “The average kickback is 50 per cent,” says Timofei Lanko, one of Hainan’s long-time residents, who drives across Sanya on his 150cc motorcycle. A 20-yuan kickback per 60-yuan ticket does not appeal to Russia’s big tourist companies. And Chinese tour operators do not bring their clients here because the cinema is on the top floor of a big trade centre, where tourists to China can easily buy things their tour operators are so keen to sell to them at three times the normal price. No one wants to take risks, leaving the Melekhins without clients and tourists, and it is unclear how to break this vicious circle. Big tour operators have their reasons. “Russian tourists don’t want anything; we have tried to offer them salsa and calligraphy classes, but they showed little enthusiasm, so now we focus on silk and snake potions,” an employee at a

tour operator says. More successful cases of Russian investment in Sanya are few and can be counted on the fingers of one hand. One of Sanya’s longtime residents, Andrei Ivanov, opened one Chinese and two Russian restaurants – they stay afloat but have not, so far, made him rich. Others have been less lucky. “One restaurant opened and was profitable until the building’s owners raised the rent four-fold, so they had to shut down,” Lanko says. “Three Russian men opened a bar on the embankment; they struggled on for a couple of years, then went into debt, and the police came and confiscated everything,” recalls photojournalist Timur Sedov, who used to live in Sanya for one year. There was a time when Russians were buying flats and villas en masse, but the central government imposed restrictions on the purchase of real estate by foreigners and the business petered out.

As a result, Dmitry Borozdenkov, owner of WIB Property, had to sell his car and buy a cheaper motorcycle. The Melekhins are determined to continue with

About 200,000 Russian tourists visit Sanya every year, but it’s not plain sailing for investors their business in Sanya, but will now focus exclusively on the Chinese, who are seen as a more lucrative option. But selling something to the Chinese is not that easy. Dmitry Garifullin moved to Sanya six years ago, when his father bought a shop on the cheap, and something needed to be done with it.

After six months of tough negotiating, Garifullin received Sanya’s first franchise to open a shop selling Hong Kong’s Bossini brand clothes. “First they did not want to give a franchise to a foreigner; I had to prove I was serious about it,” Garifullin says. Like the Melekhins, Garifullin’s business is growing, “we are not loss-makers”, but not as well as he had hoped. Russian tourists account for about 40 per cent of customers, visitors from the mainland make up another 40 per cent, and locals fill the remainder. “To earn good money, you need several shops,” Garifullin says. Opening new shops can be risky, with competition increasing in Sanya in recent years and new shops appearing that offer other brands. Some Russians live and run their businesses in Sanya, thanks to their enthusiasm for its fine climate and Russian community, yet Lanko hopes to meet the next New Year somewhere in the Philippines.

Russia Beyond the Headlines #3 China  

Russia Beyond the Headlines supplement distributed with the South China Morning Post in Hong Kong

Russia Beyond the Headlines #3 China  

Russia Beyond the Headlines supplement distributed with the South China Morning Post in Hong Kong

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